Does Income Tax Information Include Wages and Tips?
Wages and tips are nearly always considered taxable income at the federal level. If you are working and receiving a salary, hourly wage or tip income, you should be receiving a Form W-2 from your employer. The W-2 is an informational tax return that details your wages earned, deductions from your income for pretax benefits such as 401k contributions and health insurance premiums, tips you have reported to your employer, and taxes withheld from your wages to be paid by your employer on your behalf.
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Reading Your W-2 Form
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Your employer is required by law to provide you with a copy of your W-2 form by January 31 of the year following the tax year they are reporting. They provide a copy to the IRS as well, so the IRS knows what you are earning. The W-2 form includes your Social Security number, wages, tips and all other compensation and all federal and state income taxes withheld from your wages. Box 4 and Box 6 detail Social Security and Medicare taxes withheld from your income. Box 8 includes all tips that have been allocated to you for the year.
Deferrals, Retirement Contributions and Non-Taxable Income
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Box 12 on your W-2 Form can include a wide variety of information, but the most common for hourly and tipped employees include contributions to 401k plans, which are made pre-tax and denoted with a code "D" in the box and Code J, nontaxable sick pay.
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Tip Reporting
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If you earn more than $20 in tips from a given employer, you must report them to your employer, who must provide you with a written tip report by the 10th day of the following month. You must report all tips received, including cash tips. You can use IRS Form 4070A for a daily record, and Form 4070 to report monthly tips to your employer. Your employer uses your tip report to calculate your taxes for the year.
Mandatory Gratuity Charges
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You do not report a mandatory gratuity charge as a tip. For example, if you work as a tipped employee at a restaurant that adds a mandatory gratutity charge on parties of six or more, and your employer gives this money to you, you do not repoirt this income as a tip; it is already accounted for as part of your wages.
Filing Requirements
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Even though your employer withholds taxes from your pay, you must still file a federal tax return. Use IRS Form 1040EZ if you have no significant deductions and no dependents. Use Form 1040 or 1040A if you have deductions such as home mortgage interest or education loan interest, or if you have dependents to claim on your taxes.
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